Hilltop Wealth Solutions Logo

The SECURE Act and You

The legislation improves retirement security for many Americans

In late 2019, the SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law. Required minimum distributions (RMDs) for employer-sponsored plans and IRA accounts were raised from 70 ½ years to 72 years old. It was a welcome change. The act also included smaller changes that aided workers saving for retirement.

But the SECURE Act also changed the rules which govern inherited IRAs, or so-called stretch IRAs. The change in this provision was more controversial because it required faster distributions, at least in most cases.

Although the changes are recent, Congress is already considering what many are calling SECURE Act 2.0. As the bill winds its way through Congress, there is no guarantee of passage. But it enjoys widespread bipartisan support, and both the Senate and the House have drafted similar bills.

The devil is always in the details, but we are monitoring progress and now is a good time to provide a high-level overview.

  1. Easing the RMD bite, again. As mentioned, an RMD from a traditional IRA isn’t required until 72. SECURE Act 2.0 would raise the RMD to 73 beginning in 2022, 74 in 2029, and 75 in 2032.

    Taking your first distribution from a tax-deferred retirement account will depend on many factors, but if the funds are not needed, it is usually a good idea to defer withdrawals until required.

    By delaying a withdrawal, the investments maintain their tax-exempt status. Or, if you need cash before RMDs are required, you decide how much to withdraw. You are not bound by an arbitrary rule.

  2. A more favorable catch-up provision. If Secure Act 2.0 is passed into law, employees 50 and older can make extra catch-up contributions to a 401(k) or similar plan. The limit for 2021 is $6,500, which is indexed to inflation.

    As proposed, Secure 2.0 maintains the catch-up limits for those aged 50 but increases the annual catch-up provision to $10,000 for participants ages 62 through 64. The new limit begins in 2023. This new maximum is indexed to inflation.

    However, all catch-up contributions must be placed in a Roth IRA, which would disallow a tax deduction. Starting in 2022, all catch-up contributions must be made into a Roth IRA.

    Presumably, it’s a way for the government to capture revenue. Nonetheless, ROTH IRAs are not subject to RMDs, and withdrawals are exempt from federal income taxes.

  3. Student loan matching. SECURE Act 2.0 would permit employers to make matching contributions to their 401(k) plans tied to the employee’s student loan payments. The goal: encourage younger employees to save for retirement.

    It would also help employers pass nondiscrimination tests that prevent plans from favoring higher income employers.

    While we recognize this provision will probably complicate the administration of a 401(k) plan, we applaud the proposal simply because we know that the sooner one begins saving for retirement, the sooner one may enjoy the power of compounded returns. As we always counsel, it’s never too early to start saving.

The proposed changes discussed are the more important components of the proposed act, in our view. But we also wanted to briefly mention some of the additional provisions.

SECURE Act 2.0 would also:

  • Allow Roth contributions to SEP and SIMPLE plans.
  • Accelerate part-time workers’ participation in 401(k) plans.
  • Extend to 403(b) retirement plans some of the features of 401(k) plans.
  • Require the Treasury secretary to increase awareness of the Retirement Savings Contributions Credit (also known as the saver’s credit), which is available to low- and moderate-income workers.
  • Eliminate some impediments to offering lifetime income annuities as a retirement plan investment option.

Please keep in mind this is a high-level look at what is  proposed. We suspect changes to the proposed law will be made, but odds favor passage. And as always, we are happy to answer any questions.

Disclosure
This article was prepared by Horsesmouth, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note — investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations
https://www.jdsupra.com/legalnews/secure-act-2-0-look-out-for-new-8698774/  “SECURE Act 2.0–Look Out for New Retirement Plan Incentives”

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/congress-considers-a-new-round-of-retirement-legislation.aspx “Congress Considers ’‘SECURE Act 2.0’ with a New Round of Retirement Plan Fixes”

https://www.planadviser.com/secure-act-2-0-likely-become-reality/  “‘Secure Act 2.0’ Likely to Become a Reality”

Website Disclosures

Hilltop Wealth Solutions (“Company”) is an SEC registered investment adviser located in Mishawaka, IN with branch office located in MI and other locations throughout IN.  The Company may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.  The Company’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.  Accordingly, the publication of the Company’s web site on the Internet should not be construed by any consumer and/or prospective client as the Company’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by the Company with a prospective client shall be conducted by a representative that is either registered or qualified for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of the Company, please contact the SEC or the state securities regulators for those states in which the Company maintains a notice filing.  A copy of the Company’s current written disclosure statement discussing Company business operations, services, and fees is available by going online via the SEC’s Investment Advisers Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC #801-115255.

The Company does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to the Company web site or incorporated herein and takes no responsibility, therefore.  All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by the Company, will be profitable or equal any historical performance level(s).

Certain portions of Company web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, the Company (and those of other investment and noninvestment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from the Company, or from any other investment professional.

The Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.

Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Company is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of the Company by any of its clients.  Rankings published by magazines and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.  Rankings are generally limited to participating advisers.

To the extent that any client or prospective client utilizes any economic calculator or similar interactive device contained within or linked to the Company web site, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from the Company, or from any other investment professional.

Each client and prospective client agrees, as a condition precedent to his/her/its access to the Company web site, to release and hold harmless the Company, its officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from the Company.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Client Login
Contact Us